Q: What is the correct formula to calculate the required purchases for a merchandising company?

$$ \\text{Purchases} = \\text{Cost of Goods Sold} + \\text{Ending Inventory} - \\text{Beginning Inventory} $$

Question 1

Which of the following best describes the primary objective of budgeting in a business organization?

Accepted Answer

To coordinate a business’s activities and develop strategies to achieve goals.

Question 2

A participative budget is most likely to:

Accepted Answer

Include input from all levels of the company, making the budget more achievable.

Question 3

Which of the following is an example of budgetary slack?

Accepted Answer

Managers intentionally understate expected revenues.

Question 4

A company that prepares a budget by justifying all revenues and expenses for each new period, ignoring the previous year’s results, is using which type of budgeting?

Accepted Answer

Zero-based budgeting

Question 5

Which of the following best describes a flexible budget?

Accepted Answer

A budget prepared for various levels of sales volume.

Question 6

What is the correct formula to calculate the required purchases for a merchandising company?

Accepted Answer

$$ \text{Purchases} = \text{Cost of Goods Sold} + \text{Ending Inventory} - \text{Beginning Inventory} $$

Question 7

A manufacturing company desires to have an ending inventory each quarter equal to 20% of the next quarter’s sales. If projected sales for Q2 are 10,000 units, what should the ending inventory for Q1 be?

Accepted Answer

2,000 units

Question 8

Which budget estimates the amount of materials to purchase to meet the company’s production needs?

Accepted Answer

Direct materials budget

Question 9

If a company wants the ending balance in Raw Materials Inventory to be 40% of the next quarter’s budgeted direct materials needed for production, and the next quarter’s need is 5,000 kg, what should the ending inventory be?

Accepted Answer

2,000 kg

Question 10

Which of the following is NOT a component of the master budget?

Accepted Answer

Dividend declaration budget

Question 11

A merchandising company’s sales budget projects $50,000 in sales for April, with 60% cash and 40% on account. How much are the projected credit sales for April?

Accepted Answer

$30,000

Question 12

Which section of the cash budget details how the business expects to go from the beginning cash balance to the desired ending cash balances?

Accepted Answer

The entire cash budget

Question 13

A company’s monthly payroll consists of fixed salaries of $$2,500 plus sales commissions equal to 15% of sales. If sales are 20$$,000 for the month, what is the total payroll expense?

Accepted Answer

$5,500

Question 14

Which of the following best describes sensitivity analysis in budgeting?

Accepted Answer

A what-if technique that examines the impact of changes in assumptions on budget outcomes.

Question 15

Which of the following is a benefit of using budgeting software in the budgeting process?

Accepted Answer

It makes compiling and summarizing budget data more efficient, allowing managers to focus on analysis and decision-making.

Question 16

If a company’s cash budget shows a projected cash deficit, which of the following actions is most appropriate?

Accepted Answer

Borrow funds through short-term financing.

Question 17

Which of the following budgets is prepared first in the master budget process for both manufacturing and merchandising companies?

Accepted Answer

Sales budget

Question 18

A company’s direct labor budget estimates 1,000 hours needed at a rate of $15 per hour. What is the total direct labor cost?

Accepted Answer

$15,000

Question 19

Which of the following best describes benchmarking in the context of budgeting?

Accepted Answer

Comparing a company’s budget to its prior performance or best practices from other companies.

Question 20

Which of the following is a key difference between a static budget and a flexible budget?

Accepted Answer

A static budget is prepared for only one level of sales volume, while a flexible budget is prepared for various levels.

(25 ) Master Budgets: Concepts, Preparation, and Applications

Study Guide - Practice Questions

Study Guide - Flashcards